Almost two years since the Arab Awakening started, the future of the Middle East and North Africa is in a flux, with fledgling democracies struggling to find their way and renewed outbreaks of violence adding to the challenges the region is facing. Some are starting to worry aloud that the revolutionary path may hit a dead end.

To me, a useful way to think about the present situation is that the region could end up taking any one of three alternative paths, as far as its economic future is concerned. We could witness either:

Economic deterioration, if squabbling over political power prevents stabilization, let alone reform;

Stabilization through a reassertion of vested businessinterests that would offer a respite from eroding economic conditions, but condemn the region to a return to economic stagnation or at best tepid growth;

Or we could see a new economy emerge, as newly elected governments gradually find a way to end economic disruptions and undertake reforms that open the way to greater economic opportunity for their people.

While the first two paths would be undesirable, they could come to pass. Needless to say, the third path of transformation would be best.

No doubt the Arab countries in transition will chart their own paths. But I strongly believe that the international community also has a role in helping them avoid the unfavorable outcomes. Let me share some thoughts on how we can provide support.

Need for economic change

When I visited Tunisia in mid-November, President Moncef Marzouki and Prime Minister Hamadi Jebali explained to me the many challenges facing their country. It was in Tunisia that the Arab Awakening began nearly two years ago, with a self-immolation by a street vendor in December 2010. The next month, the call in Egypt for “bread, freedom, and social justice” echoed across much of the Arab world and caught the attention of the world.

“The whole Arab world is watching Tunisia,” President Marzouki told me. “We have to succeed—-not only for us, but for everybody else.”

The mandate for change in the Middle East was not just political― it extended deep into the economic sphere. People were calling for a say in how their countries would be governed and for greater opportunities for prosperity and human fulfillment.

If there is one fact I think sums up the problems of the region, it is that the non-oil exports of the whole region, are $365 billion, about the same as the exports of Belgium, a country of 11 million people, compared with the 400 million people who make up the Arab world.

This is a crucial indicator of the nature and size of the structural adjustment problem the Arab countries in transition face. If you cannot export to the rest of the world, you are stuck serving the limited domestic market, and as we have seen, countries in the region have not been able to create the jobs to employ their rapidly growing populations. This statistic epitomizes the problem. But ironically, it also illuminates the way forward.

What should transition countries do?

To achieve broad-based and sustainable growth, the countries of the Middle East and North Africa need to move away from state-dominated to private investment and from protected industries and rent-seeking to export-led growth and value creation. That’s where the jobs will be.

To unlock the region’s formidable growth potential, the private sector must become the main source of growth, which will only happen if they can access global markets, not just their home markets.

So now is the time for a dynamic dialogue with political and thought leaders about their economic future, a dialogue that might lead to a roadmap and transformation strategy to channel peoples’ energies toward a common goal.

The process of defining the reform agenda in each country must be truly participatory and draw on the perspectives of all stakeholders. Reform plans, no matter how technically sound, cannot be imposed without broad popular understanding and acceptance.

Despite the rain pummeling Tunis during my short visit, it was hard not to be optimistic given the country’s obvious dynamism. Jebali himself symbolizes a fresh start: under the previous regime he spent 15 years in prison–10 of them in solitary confinement. Yet I found him serene and focused on the task of rebuilding his country.

Turkey also provides an inspiring example of a Muslim country that has chosen fundamental economic reform and has become a vibrant emerging market economy with a strong and growing middle class.

How can the international community help?

When one considers the potential costs of the two undesirable paths I described earlier, and the benefits not only for the region, but for the global economy and security of the third path, it is clear that the international community should make a concerted effort to help, by providing adequate financing, trade access, and policy advice.

At the IMF, for our part, we are trying to step up to the challenge. In the past year alone, we have provided a total of $8½ billion in loans for Jordan, Morocco, and Yemen. We have just reached a staff-level agreement on a $4.8 billion support package with the government of Egypt. We are helping Tunisia through policy advice or technical assistance, and stand ready to provide financing, if needed. As in the other countries, we are providing policy advice and technical assistance, including to Libya.

But the IMF must focus on its core mission, stabilization. The MENA countries need much more, if they are to transform their economies. So, it will be very important for the international community, including the G-8 countries, regional partners such as the Gulf Cooperation Council countries, and international and regional development banks to provide not only adequate support for stabilization, but also for capacity building, trade and investment.

The European Union and the United States will need to hold out the prospect of deep market access for trade in products and services for countries that are willing to undertake fundamental reforms.

Investment, including with support and enhancements from bilateral and regional partners, can help jump start growth. The invaluable expertise, coupled with investment in the private sector by the European Bank for Reconstruction and Development and other financial institutions can act as trailblazers, leading investors into new sectors and markets, as happened in eastern and central Europe.

Those investments will not only catalyze economic transformation, but also serve the economic and security interests of the international community.

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[…] The World Bank and the IMF have written extensively on the problems in the region: non-oil exports that collectively are smaller than Switzerland’s; a dearth of jobs for young people; closed and often state-dominated economies in which rulers dole out perks to favored allies. Because leaders, including now-ousted Egyptian president Hosni Mubarak, have used food and fuel subsidies to make up for the lack of opportunity among the poor and middle class, governments in those countries must finance what have become unaffordable benefits or risk political backlash if they are cut. Efforts to reduce fuel subsidies in Jordan have rocked that usually stable monarchy in recent months. […]

[…] the revolution. As the riots raged last week, IMF deputy managing director David Lipton warned in a blog post that despite the new democratic governments, political infighting and vested business interests […]